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Supreme Court decision lifts Microsoft shares

The decision to have a lower court hear the software giant's appeal in the landmark antitrust case lifts the company's stock, but next month's earnings report will likely pack more punch.

The U.S. Supreme Court's decision today to have a lower court hear Microsoft's appeal in the landmark antitrust case boosted the company's stock, but next month's earnings report will likely pack more punch with investors.

Microsoft shares jumped $2.75, or nearly 5 percent, to $64 by midday. However, the shares still traded at about half of a 52-week high of $119.93, partly as a result of legal clouds hanging over the company.

While today's court developments breathed some life into the moribund shares, analysts expect the company's upcoming Oct. 16 earnings announcement to have more impact in the long term. Analysts surveyed by First Call/Thomson Financial expect the software giant to earn 41 cents per share.

"The real upside here is that if the company does manage to have a stronger quarter--since the appeal is being seen in a more sympathetic venue--it will give the stock a lot more room to run," said Joseph Beaulieu, a senior analyst at Morningstar.com

The high court order this morning is being viewed as a victory for Microsoft because it promises to give the company an extended opportunity to defend itself in an environment thought by some to be more sympathetic to Microsoft. It also gives the company time to wait for a more favorable political climate.

The threat of an expedited Supreme Court hearing, which could have resulted in the company being split in two, weighed on the stock. In June, U.S. District Judge Thomas Penfield Jackson ordered that Microsoft be split into separate companies.

"I would certainly think people would be more apt to consider an investment in Microsoft, as opposed to before this decision," said Dan Cook, a portfolio manager with Stone Ridge Investment Partners, which manages a $1 billion portfolio. "The fact that the Supreme Court could have heard it has been an overhang on the stock, and I would certainly feel...reluctant to throw a lot of money into it. Anytime you remove that, it's going to make the investment criteria much more attractive in this case."

Cook also pointed out that delaying the final verdict on the Microsoft case will allow for a change of administration in the White House. "From a political standpoint, the possibility of a Republican administration certainly plays into investors' psychology as well."

Despite the lift in Microsoft's shares today, Beaulieu says the company will have to prove itself on its fundamentals for its stock to rise above the $70-range. He said that the company is at a slow point in terms of new product introductions, and that reviews of its new Windows ME operating system for consumers have been lukewarm.

"I could see it climbing up into the low seventies in the coming weeks, but I think the impact is going to be muted by a fair-to-middling quarter by the company," Beaulieu said.

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